What Building Contract Will a Lender Accept?
Construction Finance
Contract types · Lender approval · Progress payments
Your building contract can decide the lender before the lender assesses you. This guide explains which contract types Australian construction lenders accept, what has to be in the document, what the law fixes, what can still move after a fixed price is signed, and what to do if finance, the valuation, the builder or the build changes.
Quick Answer
Most Australian construction lenders prefer a fixed price building contract with a licensed builder, a defined scope and a progress payment schedule. Some lenders will consider cost plus or owner-builder projects, but the lender pool is smaller and extra cost verification, independent costing and borrower equity may be required. Get the contract type checked before you sign, not after finance is due.
Also called: fixed price building contract, lump sum building contract, cost plus building contract, owner-builder construction finance.
Which building contract types will a construction lender accept?
Construction lenders accept fixed price contracts most readily, some accept cost plus contracts, and a smaller group will fund owner-builder projects. Design and construct and construct only contracts are usually assessed on the same underlying questions: is the price sufficiently certain, is the scope complete, and can every payment be tied to a stage that can be verified?
The contract name is not the approval. An HIA, Master Builders or other familiar industry form can make the document easier to read, but it does not force a lender to accept the deal. The lender still looks through the cover page to the price basis, scope, drawings, payment schedule, builder credentials, insurance, allowances, related-party risk and any clauses that allow the price to move.
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| Contract type | Typical lender position | What the lender needs to get comfortable |
|---|---|---|
| Fixed price or lump sum | Widest acceptance. | A defined scope, signed price, plans and specifications, licensed builder and a progress payment schedule. |
| Cost plus | Some lenders only. | A credible estimate or cap, transparent margin and cost verification, plus a quantity surveyor report where required. |
| Design and construct | Case by case. | Evidence that the contractor carries the design obligation and that the price and stage schedule are sufficiently fixed for valuation and drawdowns. |
| Construct only, including forms such as AS 2124 | Case by case. | Completed owner-procured design, approvals, a clear construction price and a stage schedule. |
| Owner-builder | Smallest lender pool. | Owner-builder permit, approved plans, independent costing, a workable stage budget and materially more equity. |
Do you need a fixed price contract for a construction loan?
Usually, but not always. A fixed price contract with a licensed builder is the cleanest route and the one named in published construction-loan requirements, but current lender policies show that cost plus and owner-builder projects can still be funded in some cases.
Mortgage insurance is one reason fixed price is so common. Helia's January 2026 mortgage insurance guidelines require a fixed price contract from a licensed builder for an insured construction loan. A cost plus or owner-builder file may therefore need enough equity to sit outside mortgage insurance as well as meeting the lender's own construction policy.
Source, read 21 September 2026: Helia, "LMI underwriting standards and guidelines, Australia, January 2026", section 4.2.2, helia.com.au. Applies to loans insured by Helia only; lenders can set tighter or different rules.Fixed price does not mean fixed final cost. Prime cost items, provisional sums, variations and anything excluded from the scope can still change how much cash you need. Those risks are separated out in which costs sit outside the contract.
Will a lender accept a cost plus building contract?
Some will and some will not. Current published policies are genuinely inconsistent: Westpac publishes construction lending on fixed price or cost plus contracts, while CommBank's construction fact sheet limits contracts under $1 million to fixed price and says cost plus may be eligible only above that. Check a cost plus contract against the lender before you sign it, rather than assuming it is acceptable because the project itself is strong.
The lender's problem is not the label. It is that the final build cost is not capped. Where cost plus is accepted, the lender commonly replaces that missing certainty with an estimated or capped maximum cost, evidence of the builder's margin, independent cost verification and a quantity surveyor where the valuer or lender requires one.
Sources, read 21 September 2026: Westpac publishes construction lending for licensed-builder work on fixed price or cost plus contracts, westpac.com.au; CommBank's building and construction home loan fact sheet (005-537) says only a fixed price contract is eligible where the contract is under $1 million, and a fixed price or cost plus contract may be eligible above that; confirm the current version with the bank, commbank.com.au; ANZ publishes a fixed price building contract as a construction-loan requirement, anz.com.au. These are published positions, not a complete lender-policy map.State law can narrow the contract before lender policy even starts. In Victoria, cost plus is restricted for domestic building work. In South Australia, the consumer regulator says a cost plus home building contract can charge actual cost plus an agreed margin not exceeding 15 per cent and must flag prices that can change.
Sources, read 21 September 2026: Consumer Affairs Victoria, "Building contracts", consumer.vic.gov.au; Consumer and Business Services South Australia, "A guide to price increases for home building work contracts", cbs.sa.gov.au. State-specific legal rules; general information only.What does a lender require from an owner-builder?
An owner-builder lender replaces the missing builder's contract with evidence: the owner-builder permit, approved plans, an independent costing, a stage budget and materially more equity. The lender is funding a project without a separate licensed builder carrying a fixed-price completion obligation, so the file has to prove cost and completion risk another way.
The permit comes first because every state and territory runs its own owner-builder regime. In New South Wales, for example, a permit is required above the relevant work threshold and the application needs evidence including ownership, approvals, plans and estimated labour and material cost.
Source, read 21 September 2026: Building Commission NSW, "Apply for an owner-builder permit", nsw.gov.au. NSW example only; other states and territories differ.With no contract sum, an independent costing often does the job a fixed price would otherwise do. It gives the lender and valuer a defensible build budget and a stage-by-stage basis for drawdowns. Mortgage insurance also illustrates how differently this risk is treated: Helia's January 2026 guidelines cap insured owner-builder construction lending at 50 per cent of the expected on-completion value.
Source: Helia, "LMI underwriting standards and guidelines, Australia, January 2026", sections 4.2.2 and 8.4, helia.com.au, read 21 September 2026. Applies to loans insured by Helia only, not every owner-builder loan.From our broking, indicative
On owner-builder files, the fastest way to lose time is to start with the question "which lender will do it?" before the costings and permit are ready. The useful sequence is permit and plans, independent cost, stage budget, equity position, then lender policy.
Qualitative practitioner guidance based on files Switchboard has worked on. Lender policy varies and can change.
If you are at the beginning of the process, the first development finance guide for owner-builders covers the sequence. If the build has already started and stalled, owner-builder mid-build funding covers a different problem.
Can a builder or tradie get a construction loan to build their own home?
Yes, but lender classification matters. A licensed builder contracting through their own company may be treated as a normal builder-contracted construction loan by one lender and as an owner-builder or related-party build by another. A tradie who is not the licensed builder and manages the job themselves is usually in owner-builder territory.
The issue is completion risk. In an ordinary build, a separate builder has promised to finish a defined job for the borrower. When the borrower controls the building company, that separation is weaker, so the lender may ask for more equity, independent costing, extra evidence about the building company or a different construction structure.
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| Build structure | How the lender may view it | What usually needs to be proved |
|---|---|---|
| Separate licensed builder with no borrower ownership | Closest to an ordinary builder-contracted construction loan. | Fixed or otherwise acceptable price basis, plans, stage schedule, licence, required insurance and valuation. |
| Borrower or director controls the building company | Related-party or self-contracting build. Some lenders may still use a standard construction route; others apply owner-builder style controls. | Correct company licence, genuine contract and scope, insurance position, independent costing where required, sufficient equity and evidence the build can be completed. |
| Borrower manages the build without a contracted licensed builder | Owner-builder. | Owner-builder permit, approved plans, independent costing or quantity surveyor input, stage budget, contingency and more equity. |
| Tradie performs part of the work only | Depends on who legally carries the overall building contract and who manages completion risk. | The lender needs the contracted builder, owner-supplied work and any excluded labour or materials clearly identified in the cost-to-complete position. |
Related-party does not automatically mean declined. It means the lender has to decide whether the contract creates enough separation between the borrower and the party promising to complete the build. Policy varies, so settle the classification before signing the contract or committing your equity.
New South Wales adds a legal detail that matters to the document itself: a licence held by an individual does not automatically let their company contract as the licensed builder. The company needs the appropriate licence in its own name. The NSW 10 per cent deposit cap also does not apply to a contract between two licence holders, including for work on premises one of them owns, so a contract between your licensed company and you as a licensed individual can sit outside it. Related-party contracts deserve legal review before signing.
Sources, read 21 September 2026: Building Commission NSW, "Contracts for residential building work", nsw.gov.au; Home Building Act 1989 (NSW), section 8, austlii.edu.au. NSW only; not legal advice.For a self-employed builder or tradie there are then two assessments. The project is assessed on the contract, plans, builder and valuation; your borrowing capacity is assessed on the business income evidence. The income side is covered in the construction loan guide for self-employed borrowers, while builder due diligence explains what a lender reads on the construction side.
What must a building contract contain for construction loan approval?
A construction-ready contract needs enough information for the lender and valuer to price the finished security and release money without guessing. That normally means a signed price basis, defined scope, plans and specifications, a progress payment schedule, builder details and the insurance or warranty documents required for the project.
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| Item | Why it matters to the lender | What commonly causes a delay |
|---|---|---|
| Signed price and scope | Shows what is being built and what the lender is being asked to fund. | Quote-only documents, exclusions, uncapped allowances or a price that can move without a clear rule. |
| Plans and specifications | Let the valuer estimate the on-completion value and verify what the contract price covers. | Plans still with council, drawings that do not match the signed scope, or material selections still unresolved. |
| Progress payment schedule | Sets the amount to be released at each verifiable stage. | Front-loaded payments, stages that do not match the contract or state rules, or invoice amounts above the approved schedule. |
| Builder licence and insurance | Confirms who is legally carrying the build and the required project cover. In Victoria, home warranty cover for work over $20,000 is now issued by the Building and Plumbing Commission under the First Resort Home Warranty Scheme, which commenced on 1 July 2026. | Licence mismatch, related-party builder questions or insurance not yet issued. |
| Prime cost and provisional sums | Shows where the supposedly fixed price can still move. | Large allowances with no quantity, unit cost or realistic estimate. |
| Start, finish and variation terms | Shows how timing and price changes will be handled once the loan is approved. | A builder start date outside the lender's approval window or variation clauses that shift uncapped cost to the borrower. |
A quote, tender or preliminary agreement can be enough for more than simple budgeting with some lenders, but the treatment is lender-specific. A current fixed-price tender can support valuation and, with some lenders, unconditional approval before the final contract is signed. IMB, for example, publishes that it can approve on a fixed price tender, then needs the signed contract at the same amount before it issues an authority to commence construction, and that a different contract price may mean the loan is reassessed. Other lenders want the signed building contract earlier. In either case, the lender normally needs the final signed contract, approved plans and required insurance before it authorises construction or releases building funds.
Sources, read 21 September 2026: Victorian Government, "Building reform", planning.vic.gov.au, for the First Resort Home Warranty Scheme; current published construction-loan requirements at anz.com.au and imb.com.au; Consumer Affairs Victoria, "Pre-construction building contracts", consumer.vic.gov.au. A preliminary agreement can itself be a legal contract for preparatory work and does not necessarily replace the final building contract.A lender-readable contract
- Signed by the correct parties
- Price basis is clear
- Scope and inclusions match the plans
- Stage amounts are explicit
- Builder licence and insurance are ready
- Allowances and exclusions are visible
What commonly stalls the file
- A quote standing in for the final contract
- Plans still awaiting approval
- Deposit or stages that conflict with state rules
- Insurance still outstanding
- Large provisional sums without support
- Savings needed for exclusions but committed elsewhere
How much deposit can a builder ask for, and how do progress payments work?
The answer depends on the state or territory. Deposit caps are mainly set by building law, while progress-payment rules range from prescribed statutory stages to a simpler rule that the payment must match work already completed. The lender then overlays its own drawdown and inspection process on top.
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| State or territory | Maximum deposit or current rule | Important qualifier |
|---|---|---|
| New South Wales | 10 per cent of the contract price. | For work requiring home building compensation cover, the certificate must be provided before money is taken. |
| Victoria | 10 per cent under $20,000; 5 per cent at $20,000 or more. | Current rules. Victoria's Domestic Building Contracts Amendment Act 2025 moves deposit and stage limits into regulations; its start was delayed and is currently scheduled for 1 April 2027, applying to contracts signed from then. Draft regulations propose higher deposit limits. |
| Queensland | 10 per cent for contracts from $3,301 to $19,999; 5 per cent at $20,000 or more; up to 20 per cent where more than half the work by value is performed off site. | Different rules can apply to particular contract types. |
| Western Australia | 6.5 per cent for contracts from $7,500 to $500,000. | The Home Building Contracts Act deposit cap does not apply below or above that contract-value band. |
| South Australia | Up to $1,000 where the contract price is under $20,000; 5 per cent where it is $20,000 or more. | Separate authorised advance payments can apply for specified third-party costs. |
| Tasmania | For contracts covered by the Act, 5 per cent at or above the set amount and up to 20 per cent where more than half the contract value is off-site work. | Below the set amount, currently $20,000, the cap is 10 per cent. |
| Australian Capital Territory | No statutory cap. The ACT Government notes industry practice of up to 10 per cent. | Residential building insurance currently covers a lost deposit only up to $10,000, so keep the deposit near that figure where you can. |
| Northern Territory | 5 per cent under the standard residential building payment schedule. | An alternative schedule can be agreed using the prescribed process. |
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| State or territory | Progress-payment rule | What it means for the loan |
|---|---|---|
| New South Wales | Contracts over $20,000 need a progress payment schedule; payments must match work carried out. | The lender can compare the invoice to a defined contract stage rather than an advance payment. |
| Victoria | Statutory stages and maximum percentages currently apply. | The lender's schedule should align with the legal stage structure or an approved alternative. |
| Queensland | Claims must be proportionate to the work completed; no more than half the contract price should be paid before at least half the work is complete. | Front-loaded schedules can create both a legal and funding problem. |
| Western Australia | Progress payments are for work actually performed or materials already supplied. | The lender will not treat an early cash call as a completed stage merely because the builder invoices it. |
| South Australia | As a general rule, only genuine progress payments for work already performed can be demanded. | Advance funding outside the permitted categories should be checked before it is paid. |
| Tasmania | The contract must regulate progress payments under the residential building work regime. | The lender still needs a clear stage schedule that can be reconciled to work completed. |
| Australian Capital Territory | No statutory stage percentages. Government guidance is to pay for a stage only once it is complete. | Pay against completed stages and keep the lender's inspection requirements in the schedule. |
| Northern Territory | The standard schedule sets staged maximums, with an alternative schedule possible through the prescribed process. | The lender's draw schedule should match the contract schedule actually signed. |
What are the Victorian base, frame, lock-up and fixing payment limits?
Under the current Victorian schedule, a contract to build all stages can pay up to 10 per cent at Base, 15 per cent at Frame, 35 per cent at Lock-up and 25 per cent at Fixing, leaving the balance for completion. Those percentages are caps at completed stages, not a lender's recommended budget.
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| Stage | Complete when | Contract to build all stages |
|---|---|---|
| Base | Footings, stumps, piers or slab are complete, depending on the floor type. | 10 per cent |
| Frame | The frame is complete and approved by a building surveyor. | 15 per cent |
| Lock-up | External cladding and roof are fixed, flooring is laid and external doors and windows are fixed. | 35 per cent |
| Fixing | Specified internal cladding, joinery, doors, shelves, wet-area fittings and cupboards are fitted. | 25 per cent |
Victoria's rules are changing, later than first announced. The Domestic Building Contracts Amendment Act 2025 (Vic) moves deposit limits, progress payment stages and progress payment limits out of the Act and into regulations, and allows cost escalation clauses on contracts worth $1 million or more, capped at 5 per cent of the price. It was due to start by 1 December 2026; the Consumer Legislation Amendment Act 2026 delayed that, and the changes are currently scheduled to commence on 1 April 2027 for contracts entered into from then. Draft regulations released for consultation propose higher deposit limits and a new site preparation stage. If you sign after commencement, check the regulations in force on the day you sign.
Which build costs sit outside a fixed price contract?
A fixed price contract is not the same as the total cash cost of the build. The lender advances against the approved contract and loan structure; prime cost items, provisional sums, variations, price-adjustment clauses and anything excluded from the scope can still create a cash requirement outside the loan.
Prime cost items are allowances for fixtures and fittings that have not been finally selected and costed. Provisional sums are allowances for work that cannot be accurately priced at signing, such as uncertain excavation. If the actual amount is higher, the contract price can move even though the headline contract is described as fixed price.
Source, read 21 September 2026: Consumer Affairs Victoria, "Deposits and payments for building work", consumer.vic.gov.au, for Victorian prime cost and provisional sum disclosure rules. Other jurisdictions differ.A separate risk is a rise and fall or cost-escalation clause. These clauses can shift labour or material price movements back to the owner where the law and contract permit them. They are not the same thing as an ordinary fixed price contract, and the lender may treat a material escalation mechanism as additional cost uncertainty.
Do not assume the construction loan will pay the builder's deposit. Published lender processes differ. Some require your own contribution to be paid to the builder before construction loan funds are used, while another current major-bank process can fund the builder's deposit only after your own savings are exhausted, the deposit is in the approved schedule and all construction documents are ready.
Sources, read 21 September 2026: ANZ, which says own savings used for the project will usually be paid to the builder before the construction loan is used, anz.com.au; BOQ, which publishes conditions under which construction loan funds can be used for a builder deposit, boq.com.au. Lender processes differ.Common exclusions include some site and connection costs, authority contributions, landscaping, driveways, fencing, window furnishings and finishing items the signed scope leaves to the owner. Put those amounts into the project feasibility before you sign. The broader numbers are covered in development feasibility and what lenders test, and the rescue path once a gap appears is in cost overruns mid-build.
Can you get construction finance before signing the building contract?
You can often get pre-approval before the building contract and final plans are ready. The next step is lender-specific: some lenders can move further using a current fixed-price tender or unsigned contract, while others need the signed contract before formal approval. What pre-approval does not do is approve the final builder, price, plans or on-completion value, and the signed contract plus approved construction documents are normally required before work is authorised and construction funds are released.
A finance clause is not a lender requirement. It is a contractual protection to discuss with your solicitor before signing, especially where the contract price is large, plans are still being approved or the valuation has not been completed. Do not assume a cooling-off period or finance clause will solve a funding problem after you have committed.
Do not confuse "finance pre-approved" with "safe to pay the builder deposit". The loan, the building contract and the state deposit rules run on separate tracks. Before paying, confirm that the contract is signed on the terms you intend to keep, the required insurance has been issued where applicable, and you know whether the deposit comes from your own contribution or the lender's approved construction schedule.
Four clocks to line up before you sign
- Your finance clockWhen pre-approval expires and what the lender still needs for formal approval.
- Your land clockThe finance date, unconditional date and settlement date on the land contract.
- Your approval clockWhen council-approved plans and permits will actually be available for valuation and formal approval.
- Your builder clockHow long the quoted price is held, when the builder can start and whether the contract contains escalation or extension clauses.
The safe sequence varies with the contract. A solicitor should advise on the legal effect of any finance clause or cooling-off right.
Questions to ask your builder before you sign
- Is the price fixed?If not, what is the capped or estimated maximum cost, and how is the margin charged?
- Which form is the contract?An HIA, Master Builders or Australian Standard form, or the builder's own drafting.
- Does the payment schedule follow the rules?Stages and percentages that match your state's law and can be inspected.
- What is the deposit?Within the state cap, and payable only once the required insurance certificate is issued.
- What are the allowances?Every prime cost item and provisional sum, with the amount allowed for each.
- What is excluded?Site costs, connections, driveways, landscaping, fencing and window furnishings.
- Can it be signed subject to finance?And until what date, so a low valuation does not leave you committed.
- When can the builder start?And how long the quoted price is held, so the start date fits your lender's approval window.
If the land has to settle before the construction facility is ready, do not force the construction approval into the wrong timetable. In some situations the land can be funded first and the build added later; site finance before approval covers that sequencing problem.
What can you do if the lender will not accept your building contract?
A lender rejecting the contract does not always mean the project is unfinanceable. It means the current contract and the current lender do not fit. The next step is to identify the exact reason before you change the loan, the contract or the builder.
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| Why the file stopped | Possible route | What to check before changing anything |
|---|---|---|
| Cost plus is outside policy | Ask whether the builder can genuinely re-price to fixed price, or use a lender that accepts cost plus with extra controls. | Do not convert the contract just for finance without understanding the new price, contingency and legal effect. |
| Owner-builder is outside policy | Move to an owner-builder-capable route with permit, independent costing, stage budget and more equity. | Confirm the revised leverage, valuation method and drawdown process before committing. |
| The contract pack is incomplete | Finish plans, specifications, insurance, payment schedule or builder evidence before formal approval. | Check whether finance or land deadlines will expire while the documents are completed. |
| The valuation is too low | Bring more cash, reduce or re-price the scope, or restructure the finance where appropriate. | A signed contract does not require the lender to fund the difference between cost and valuation. |
| Land settles before the build is ready | Consider a land or site-first structure and add construction once the contract and approvals are ready. | This is a separate approval and may change serviceability, valuation and total cash needed. |
What if the lender accepts the contract but the valuation is lower than the build cost?
A signed contract does not force the lender to lend against the contract price. The loan is still constrained by the lender's valuation and loan-to-value rules, so a lower on-completion valuation can create a cash shortfall even when the contract itself is acceptable. The practical choices can include more cash, a reduced or re-priced scope, or a different finance structure where suitable. The worked options are in valuation shortfall at settlement.
The mistake is to change three things at once. First get the lender's reason in plain English: contract type, missing document, valuation, builder, equity or timing. Then solve that one constraint. The development finance lane is where non-standard construction structures sit.
What happens if the lender refuses a progress payment or the build stalls?
A construction lender can stop the next draw even after the loan was approved if the completed work, documents, contract, plans, builder or remaining funds no longer match what was approved. The fastest way forward is to identify the exact trigger, prove the revised cost to complete, and get the lender's approval before more work or payments create a bigger gap.
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| Why the draw can stop | What the lender may need | Practical next move |
|---|---|---|
| The stage is incomplete or does not match the invoice | Inspection, completed work evidence, corrected invoice or confirmation that the contracted stage has actually been reached. | Do not pay ahead of the verified stage just to keep the build moving. Reconcile the builder's claim to the contract schedule first. |
| The invoice is above the approved stage amount | Evidence of where the extra cost came from and proof of available borrower funds or an approved loan change. | Work out the cash shortfall before the lender releases the scheduled amount. A higher builder invoice does not automatically increase the construction facility. |
| A variation changed the cost, plans or value | Signed variation, revised plans or quotes, funds-to-complete evidence and sometimes a new valuation. | Send the variation to the lender before committing where possible. Large changes can be treated as a reassessment, not a routine draw. |
| The builder failed or a replacement builder is needed | New signed contract, new progress schedule, current approved plans, required insurance and lender approval of the replacement builder. A new valuation may also be required. | Get legal advice before terminating the old contract and tell the lender before further payments or site work. |
| There is not enough undrawn money to complete the build | Updated cost-to-complete, evidence of extra cash, revised scope or a new finance assessment. | Treat it as a funding shortfall, not a progress-payment admin problem. The options can include more cash, scope reduction, additional lending or refinancing where available. |
| The construction period or approval window is expiring | Extension request, updated project timetable, current documents and sometimes a reassessment or valuation. | Raise the delay before the deadline. Once a construction approval has expired, an incomplete build can become a materially harder refinance. |
If the issue is simply an invoice and inspection mismatch, use progress claims and drawdowns. If the remaining loan will not complete the build, use cost overruns mid-build. If the original construction lender cannot continue and the build is incomplete, treat refinance as a separate credit and security problem rather than assuming another lender will take over the undrawn balance unchanged.
What happens after you sign the building contract?
After signing, the lender completes the project assessment, orders or completes the on-completion valuation, issues formal approval when the file is complete, and releases construction money stage by stage. Your own contribution is usually dealt with first, and changes to the price, plans or builder should be raised before the next draw.
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| Step | What happens | What can derail it |
|---|---|---|
| 1. Contract and plans go in | The lender and valuer assess the signed scope, price, plans, builder and on-completion value. | Plans still unapproved, missing insurance, contract type outside policy or scope that does not match the valuation. |
| 2. Formal approval | The construction facility is documented once the borrower and project both satisfy policy. | A pre-approval that expires, changed income position, changed contract price or a low valuation. |
| 3. Deposit and own contribution | Your required cash contribution is paid in the sequence set by the lender before or alongside construction drawdowns. | Cash is tied up elsewhere when the builder requires payment. |
| 4. Progress claims | The builder invoices a completed stage and the lender releases the approved amount after the required checks or inspection. | Invoice above schedule, incomplete stage, missing documents or unauthorised advance payment. |
| 5. Variations or plan changes | The lender assesses whether the change affects cost, value, loan amount or approval. | A material variation agreed with the builder before the lender is told. |
| 6. Builder change | The lender assesses the replacement builder, contract, schedule, insurance and possibly a new valuation. | Work restarts before the new builder is approved for drawdowns. |
| 7. Final payment | The lender completes final checks and may require a final valuation, insurance and completion or occupancy documents. | Defects, missing completion documents or insurance not in place. |
If the builder fails, a draw is refused, a major variation changes the approved project or construction runs past the lender's time limit, go to what happens if the lender refuses a progress payment or the build stalls. Those problems need a revised cost-to-complete and lender approval before they are treated as ordinary construction administration.
Consumer protection sources for builder failure, read 21 September 2026: NSW Government, "Protecting yourself in case of builder insolvency", nsw.gov.au; Consumer Affairs Victoria, "Domestic building insurance and insolvency", consumer.vic.gov.au. State-specific protections apply; get legal advice before terminating or replacing a builder.If the valuation comes in below the land plus build cost, go to valuation shortfall at settlement. If the project runs over budget after drawdowns start, go to cost overruns mid-build. For invoice and inspection mechanics, use progress claims and drawdowns.
The contract is the lender's map of the build. Fixed price gives the widest lender choice, cost plus and owner-builder structures need extra evidence, and state law can control deposits and payment stages before lender policy is even applied. Before signing, line up the contract, approved plans, valuation timetable, land dates and the cash sitting outside the contract. After signing, tell the lender before the price, plans, builder or cost to complete changes, because an approved construction loan can still stop drawing if the project no longer matches what was approved.
Key takeaway: the safest contract is not simply the one the builder prefers. It is the one the law permits, the lender can fund, the valuer can price and you can still afford when exclusions and changes are added.Frequently asked questions
The four forms commonly discussed are fixed price or lump sum, cost plus, design and construct, and construct only. A fixed price contract names one price for a defined scope; cost plus tracks actual cost plus an agreed margin; design and construct puts design and build with one contractor; construct only prices the build against a design the owner has already procured. For lending, the most important questions are still whether the price is fixed and whether the payment schedule can be verified stage by stage. The comparison is in which contract types lenders accept.
No. An industry-standard contract can be easier for a lender and valuer to read because the structure is familiar, but the name on the form does not override the lender's policy. The lender still checks the price basis, scope, plans, payment schedule, builder credentials, insurance and any clauses that can move the price. The lender checklist is in what the contract must contain.
Usually not for formal construction approval. A quote, tender or preliminary agreement can help with budgeting and pre-approval, but the lender normally needs the signed building contract, payment schedule and approved plans before it can complete the construction assessment and on-completion valuation. A preliminary agreement may itself be a legal contract for preparatory work, so have it reviewed before signing. The finance sequence is in construction finance before signing.
Sometimes, but do not assume it will. Many construction files require your own contribution to be used before loan funds are drawn, while some lenders may fund a builder deposit once the construction documents are complete and the deposit is included in the approved payment schedule. Confirm the sequence before the deposit is due. The broader cash requirement is covered in costs outside the contract.
Tell the lender before you commit to the variation. A lender may require evidence of the new price, confirmation that you can fund the extra amount and, for a material change, a new valuation or revised approval. If the builder invoices more than the approved stage amount, the difference commonly has to come from your own funds. Larger gaps are covered in cost overruns mid-build.
The lender normally has to approve the new builder before further construction funds are released. Expect to provide a new signed building contract, progress payment schedule, current approved plans and the new builder's insurance documents, and a fresh valuation may be required. Do not assume the old approval simply transfers to the new builder. The post-signing sequence is in what happens after you sign.
Stop treating the existing build program as unchanged and contact the lender before making further payments or appointing a replacement builder. State warranty or compensation insurance may respond depending on the project and jurisdiction, and the lender will normally need the replacement contract, payment schedule, insurance and sometimes a new valuation before drawdowns restart. Do not terminate the old contract without legal advice. The lender-change process is covered in what happens after you sign.
Construction approvals and undrawn loan funds can have lender time limits. BOQ, for example, publishes that the builder must start within six months of the loan offer and finish within 12 months of the first progress payment. If the builder start date moves or construction runs long, the lender may require an extension, updated documents, a reassessment or a new valuation, and some policies can remove undrawn construction funds after the permitted period. Raise the delay before the deadline rather than after it. Timing risks are set out in what happens after you sign.
A provisional sum is an allowance for work that cannot be priced accurately when the contract is signed, with excavation being a common example. If the actual work costs more than the allowance, the contract price increases and the extra amount may have to come from your cash unless the lender agrees to fund it. The difference between the contract price and the real project cost is covered in costs outside the contract.
A prime cost item is an allowance for a fixture or fitting that has not been finally selected and costed when you sign, such as tiles, tapware or an appliance. Choosing an item above the allowance increases what you pay, even though the contract is described as fixed price. Specify selections before signing where you can, and include the remaining allowance risk in your cash budget. The funding impact is covered in costs outside the contract.
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